2021 · Q57
The amount by which the equilibrium level of real GDP exceeds the full employment level of GDP is called
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- Arecessionary gap
- Binflationary gap
- Cincome multiplier
- Dautomatic stabilizer
Explanation
When the equilibrium level of real GDP exceeds the full-employment (potential) level, the positive output gap is called an inflationary gap, since demand pressure tends to push prices up. A recessionary gap is the reverse situation, where equilibrium GDP falls short of full employment. The income multiplier and automatic stabilizers are unrelated concepts. Hence it is the inflationary gap.